Daily Forex Market Commentary

Euro

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2925 level and was supported around the $1.2770 level.  Traders are still expressing surprise that Friday’s U.S. October non-farm payrolls number printed at -240,000 with the unemployment rate at a multi-year high of 6.5%.  On top of those bad data, pending home sales were down 4.6%, further evidence that the beleaguered U.S. housing market remains in a difficult condition despite the Federal Reserve’s massive liquidity injections and monetary easings.  Dealers seem to be rewarding central banks that are aggressively easing monetary policy to deal with the credit crisis rather than ones that are adopting a gradualist approach, such as the European Central Bank. ECB President Trichet last week intimated that borrowing costs could come down again, possibly as early as next month.  Traders are fully discounting an additional 25bps easing by the Federal Open Market Committee in December. 

In eurozone news, Germany’s cabinet agreed on Wednesday to a fiscal stimulus package that will give that country’s economy a €50 billion jolt, comprised of tax breaks and infrastructure spending.  The German economy - the eurozone’s largest - remains on the brink of an economic recession. Data released in France today saw September industrial output off 0.5% m/m.  Euro bids are cited around the US$ 1.2135 level.

Japanese Yen

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥99.45 level and was supported around the ¥98.25 level.  The Japanese government is taking steps to ease the credit crisis.  Finance minister Nakagawa last week announced plans to loosen banks’ capital requirements.  Most economists now believe Japan’s economy entered a technical recession in the quarter that ended at the end of September.  Bank of Japan is now forecasting virtually no economic growth in the fiscal year ending in March 2009.  BoJ Governor Shirakawa will speak on 26 November and Deputy Governor Nishimura speaks on 10 December.  Data released in Japan today saw core private sector machinery orders fall 10.4% q/q while headline machinery orders rose 5.5%.  The Nikkei 225 stock index gained 5.81% to close at ¥9,081.43.  U.S. dollar offers are cited around the ¥104.15 level.

The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥128.40 level and was supported around the ¥125.85 level.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥157.50 and ¥84.90 levels, respectively.  In Chinese news, the government announced a major US$ 586 billion economic stimulus package and People’s Bank of China Governor Zhou reported the central bank’s monetary policy is being shifted to “moderately easy” from “prudent and flexible.”  Data released in China overnight saw October produce price inflation up 6.6% y/y.

British Pound

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5880 level and was supported around the $1.5630 level.  Traders are still talking about Bank of England Monetary Policy Committee’s surprising decision to reduce its headline repo rate by 150bps last week to 3.00%.  Most MPC-watchers expected a 75bps or 100bps move lower and last week’s aggressive action evidences a drastic approach by policymakers who are clearly more concerned with slowing economic growth and nascent deflationary pressures rather than inflationary pressures.  Many dealers believe the MPC could lower rates again as early as next month.  Traders are also closely watching an election in Scotland to see if Prime Minister Brown’s Labour Party picks up a seat.  Brown has generally received positive reviews for taking relatively quick action to counter the credit crisis and economic slowdown.  Data released in the U.K. today saw October factory orders off a record 5.6%.  Cable bids are cited around the US$ 1.5275 level.

The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8210 level and was supported around the ₤0.8100 figure.

Swiss Franc

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1710 level and was capped around the CHF 1.1785 level.  Swiss National Bank surprised many market participants last week by reducing borrowing costs by 50bps, taking its three-month Swiss franc LIBOR target range to 1.50% - 2.50% with a target of 2.0%.  SNB reported “The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters; growth in 2009 might even be negative.” SNB is currently forecasting 2008 economic growth of 1.5% to 2.0%.  Data released in Switzerland today saw October consumer confidence decline to -27, its lowest level in five years.  U.S. dollar offers are cited around the CHF 1.1895 level. 

The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5165 and CHF 1.8650 levels, respectively.

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